Steel and Aluminum
Support the B2B2C chain

20/06/2018 Category :
#export

On June 11, the Minister of the Economy, Science and Innovation, Dominique Anglade, announced to nearly forty companies in the steel and aluminum sector that the Government of Quebec will support their activities via its ESSOR program. Why this help? How is it articulated? Whether you are in this sector, whether you have partners in this sector, or you are interested in news, Larouche offers a look at the situation and a program to discover.

The context

On May 31, the US administration announced a tariff increase on steel (25%) and aluminum (10%) for reasons of national security. To be precise, we are talking about the end of an exemption on already existing tariffs. Canada and some European Union countries, which are also affected by these tariffs, hastened to denounce this increase, which they consider insulting. The Trudeau government responded quickly by announcing tariff increases on certain US products. These increases will come into effect in the coming weeks.

But by imposing these tariffs, an entire industry is affected. The B2B2C chain in this industry, from the producer to the customer, the processors and the distributors, is likely to experience more difficult moments.

Business support

To support Quebec businesses in this situation, the Quebec government has decided to use its ESSOR program, which it administers jointly with Investissement Québec. It should be noted that it was with this program that the government supported the forest industry in the most recent softwood lumber dispute.

But what does the government really help?

For steel and aluminum, ESSOR will allow steel and aluminum products exporters to obtain loans and loan guarantees, on market terms, from the program. The objective: to allow companies, which would lack liquidity due to tariff barriers, to have working capital necessary to maintain their export activities. Thus, following a review of Investissement Québec, companies will be able to receive, in the form of a loan at the market rate, up to 75% of the amount of the price barrier.

For example, the fictional company XYZ Aluminum Canada is exporting a US $ 100 aluminum product to the United States. The product will therefore suffer the effect of tariffs on aluminum is 10% of its value so $ 10 additional. As these barriers are very high for the company, she feels she will need the ESSOR program to maintain working capital that will allow her to continue exporting. Its file is examined by Investissement Québec, which considers its needs according to the situation. Once its file is accepted, XYZ Aluminum Canada can therefore be lending up to 75% of the amount of the $ 10 price barrier, or $ 7.50. Depending on his situation, XYZ will subsequently repay his loan at the rate prevailing in the market.

The example is a little simplistic and few companies export a single product of $ 100, but it allows to grasp somewhat the mechanics. In addition, although it is not a massive injection of funds, this aid will surely allow some companies to maintain their activities. It is important to understand that this help will change or evolve. Indeed, the crisis may end tomorrow as in three years, the government has agreed with businesses in the field to regularly review the issue (MESI 2018).

If there is one thing certain, it is the uncertainty as to the end of this commercial quarrel.

Some numbers

But why are governments reacting in this way? In Canada as in Quebec, aluminum and steel represent billions of dollars and thousands of jobs.

Aluminum industry in Canada

The steel industry in Canada

• 10 aluminum smelters

• 8300 workers

• Value of production: $ 9.3 billion

• Exports: $ 7.3 billion, of which 84% sent to the United States

• 19 factories

• 22,000 workers

• Value of production: $ 14 billion

• Exports: $ 7 billion, of which 85% is in the United States

Source: CBC 2018

In Quebec in particular, the impact is significant. Indeed, nine of the ten Canadian smelters are located in Quebec. More than aluminum smelters, a host of companies processing steel products and aluminum will see their activities disrupted by tariff increases. Sometimes these products even go back and forth between the two countries' borders.In Quebec in particular, the impact is significant. Indeed, nine of the ten Canadian smelters are located in Quebec. More than aluminum smelters, a host of companies processing steel products and aluminum will see their activities disrupted by tarif increases. Sometimes these products even go back and forth between the two countries' borders.

The Steel and Aluminum Industry in Quebec

About 50% of primary aluminum imports from the United States come from Quebec, and about 60% of Quebec steel exports go to the US market.

In 2017, Quebec exports of aluminum to the United States accounted for more than $ 7 billion and nearly 90% of all Quebec aluminum exports.

In 2017, Quebec exports to the United States of steel products and steel products made from purchased steel accounted for $ 788 million and $ 291 million respectively.

In Quebec, the aluminum sector generates close to 30,000 jobs, including more than 7,000 in the primary industry.

The metal products manufacturing sector accounts for 42,000 jobs, while the steel and steel products manufacturing sectors from purchased steel generate more than 3,200 jobs.

Source: MESI 2018

ESSOR for other contextsAlthough the current trade situation is worrisome, it is important to highlight a few points regarding the ESSOR program. Indeed, ESSOR is not only used to intervene in commercial disputes. Although it has also been used for lumber trade, the program is also used to finance other investment projects. For example, Maison Simons was able to obtain a loan of $ 81 million to finance its projects, including its future online order processing center (Gagné 2018).

Ministry of the Economy of Science and Innovation. (MESI). 2018. "Aluminum and steel exported to the United States - The Government of Québec supports processors in the aluminum and steel sectors affected by special tariffs". Press release. June 11th.

The major and historic Canada-European Union Comprehensive Economic and Trade Agreement (CETA) has just been signed and the ripple effects on the Canadian economy are only just beginning to be observed.